This collapse is not produced in cloudfree skies

The collapse of Amaranth was foreseeable. A great danger warning signals had not missed in the weeks that preceded the collapse of the society of alternative management based in Greenwich (Connecticut). "Since may, investors know that the energy portfolio knew of ups and downs monthly about 11." The monthly volatility of investment in energy strategies was of the order of 12. "It was not unusual to endure losses of 24 on a particular month", said Hilary Till, researcher from EDHEC and founding leader of Premia Capital Management, investment company with a solid experience in commodity derivatives. "Monthly review sector losses and profits of the funds invested in energy would have been sufficient to hoist the red flag," she continues.

It was nothing. And two arbitration multi-stratégie, International Amaranth and Amaranth Partners funds, suffered from heavy les deux les deux d' AmaranthPartners d' d' AmaranthPartners AmaranthPartners AmaranthPartners, ont under Canadian, Brian Hunter, thirty-two years, derivatives of the natural gas markets. Losses estimated at $ end of September 6.5 billion, less than two weeks of the collapse of the case, leading the company to liquidate all of its assets, encrypted, end of August, at $ 9.5 billion. This collapse is not produced in cloud-free skies. In August, the MotherRock Fund, headed by a specialist of the derivatives on hydorocarbures (box read), had comparable difficulties that the financial community in worries.

Apparently reasonable bet

The catastrophic bet of Amaranth was based on the idea, maintained at the cost of a losing battle against the market, the difference in price between two monthly deadlines would be considerably dug out of the winter. Brian Hunter was on a cold winter and the hurricanes, including the joint effect would have been to reduce sharply the supply end of the season. A bet apparently reasonable and not particularly "frustrating". The effect boosting prices of Hurricane Katrina was in memory.

However, it is dangerous to buy positions "winter" of the natural gas market with very few brokers investing on monthly contracts, and therefore to the deadlines very close. Unlike oil, natural gas is not easily transportable. It is therefore almost impossible to compensate by an additional offer possible shortages and, a contrario, divert a market surplus. It does not monitor the weather. "Naturally, what is the charm of the raw materials is also many difficulties," Delphine Lautier and Yves Simon write in the introduction to the 3rd Edition of their "derived from raw materials market" (Economica, October 2006). "The commodity markets are indeed tainted elsewhere known imperfections." "They are due to the difficulties related to the availability and reliability of the data other than futures prices, the lack of fungibility of the assets negotiated, which implies the presence of arbitration opportunities and makes it difficult to operate comprehensive market analysis framework", they continue. Not to mention the "phenomena of seasonality in which raw materials are submitted and which are free financial assets".

Factor aggravating Amaranth is stubborn by strengthening its positions leverage allegedly then 4.5 to 5 times equity. A high but multiple widespread among "hedge funds". Finally, Amaranth, the positions taken in the energy markets were, prior to the flip side, about half of its assets and related some 75 of its profits, excessively exposed himself on the markets at will. However, unlike the US stock of raw materials, these electronic negotiation platforms do not impose to the participants of the limits of detention of speculative positions, says Hilary Till. Delphine Lautier and Yves Simon the last word: "the world of raw materials requires suitable approaches and specific methodologies." Obviously, Amaranth did not consider this simple preliminary consideration.